AMD expected to stay in the red

Revenue expected to rise 15% thanks to strong PC demand

BenjaminPimentel

SAN FRANCISCO (MarketWatch) - Chipmaker Advanced Micro Devices Inc. is expected to post revenue gains but remain in the red when it reports third quarter results today.

Analysts expect AMD
AMD, -7.50%
to report a loss per share of 62 cents on revenue of $1.5 billion, compared to earnings of 27 cents per share on revenue of $1.3 billion for the same quarter last year, according to a consensus survey. The chipmaker has posted net losses for the last three consecutive quarters.

AMD's report comes just two days after arch-rival Intel Corp. posted a 43% jump in earnings thanks to strong PC demand. But the semiconductor giant also announced plans to lay off about 2,000 of its workforce in an effort to streamline the business. See full story.

Analyst John Dryden of Charter Equity Research said Sunnyvale, Calif.-based AMD is also likely benefited from strong PC sales, particularly outside the United States.

"We expect the company's revenue to strengthen near-term as demand for laptop processors exceeds expectations in both developed and emerging markets," he wrote in a research note Monday.

He said he also expects AMD to stabilize its share losses in the server market with the rollout of its new Barcelona chips. But he added that the company will continue to struggle in the coming months.

"High seasonal demand, reduced pricing pressure and increased margins will reduce losses, but management's target for break-even in the December quarter is aggressive by 12 months, in our opinion," he said.

Charter Equity projects a loss of 80 cents per share for the third quarter.

Analyst Daniel Berenbaum of Caris & Company said he sees AMD struggling with costs as it tries to expand market share, especially against rival Intel Corp.
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"We see cost control issues as the next leg down for the stock, as checks suggest that AMD continues to spend to try to capture market share," he said in a research note Tuesday. "We do not wish to suggest that AMD should try to cost-cut its way to prosperity, but investors who are currently prepared to give AMD the benefit of the doubt with respect to new product cycles may be forced to recognize that meaningful profitability remains far over the horizon."

Caris & Company expects AMD to report a loss per share of 68 cents.

Analyst Steve Allen of Sierra Tech Research said Intel's strong performance last quarter bodes well for AMD because it underscores strong demand for chips, especially in the PC market

"Intel's results are going to lift AMD as well," he said in an interview. "What they are showing is overall strength in the PC market and also the fact that Intel is now starting to raise their gross margin. So they are actually growing based on PC market strength, rather than just taking market share from AMD."

However, he echoed other analysts' concerns about AMD's ability to compete in the server market where the company has struggled with delays in the release of its Barcelona chip.

"Barcelona has been hamstrung for a while," Allen said. "Because of previous delays, it just makes it more difficult to recapture some of the market share at the high end. I'd say Barcelona is going to be a work in progress as far as getting market acceptance."

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